A sole trader purchases a delivery van on credit. How should this transaction be recorded?
Correct answer: B. Debit motor vehicles and credit the supplier
- A. Debit purchases and credit cash
- B. Debit motor vehicles and credit the supplier
- C. Debit expense and credit sales
- D. Debit drawings and credit the supplier
Explanation
A delivery van is a non-current asset, so the motor vehicles account is debited. Since it is bought on credit, the supplier's payable account is credited.
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About Financial Statements of Sole Traders
Sole trader statements calculate revenue, cost of sales, gross profit, operating expenses and net profit, then present assets, liabilities and owner’s capital in the statement of financial position. Adjustments for closing inventory, accruals, prepayments, depreciation, bad debts, drawings and additional capital connect the two statements.
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